Private Financing Structure?

[Nathan Seltzer]

Greetings! I've been a BP member for awhile and while I have purchased real estate with my own money, I now have a private lender (a relative) who wants to invest with me on my next deal. I am buy-and-hold, so I want to end up with the property at the end of our arrangement. Basically, he will rely on my experience and legwork and provide the money. So, I have some questions.

Even though he is a relative, I want to use a "standard" contract for our arrangement, that has stark clarity, so that there will not be any gray areas or misunderstandings. Where do I start?

• Operating Agreement - Does BP have templates for these? What a typical terms?
• Subscription Agreement - This blog post said we should have this. What is it? Any templates available?

I plan to offer him above average ROI, but I want all other terms to be "standard" in terms of allocating risk and returns.

The thought in my head for structuring this is that he will pay cash for a property, and then we will use delayed financing to get his money back. If we have instant appreciation, can we delayed finance more than 80% of the purchase price? Can we do more than 100% of the purchase price (i.e. similar to cash-out refi without waiting 6 months?).

My goal would be to get him 110% of his money back by refinancing and then pay him from the property's cashflow for a year to get his full return. Is this type of arrangement typical? If not, what is typical. What arrangement works best for everyone?

I want to set up a LLC. Should I do this before making the purchase? I'm planning to finance with a local bank. Should I make him a partner in the LLC or an investor? Apparently there is legal risk in making him an investor, but I'm not asking for legal advice, just what others have done. We are in Texas. Thanks!